Success is a process that takes place over many years. There are certain habits that are responsible for the accumulation of wealth over one’s lifetime. One such habit is spending less than you make, I call it the living below your means.
Long before most wealthy people become wealthy, they make a habit of living below their means.
- Charging ordinary living expenses on a credit card – If you are unable to afford meeting your ordinary living expenses and must resort to the use of a credit card to meet your monthly living expenses, you are by definition, living above your means.
- Accumulating credit card debt is the third leading cause of bankruptcy, behind a job loss (#2) and medical costs (#1).
- Spending more than 25% of your net income on housing costs. Housing costs include rent, mortgage, real estate taxes, utilities, insurance, repairs, and maintenance.
- Spending more than 15% of your net income on food. This includes groceries and does not include prepared food. Prepared food is part of your entertainment budget.
- Spending more than 10% of your net income on entertainment/gifts. This category includes bars, restaurants, movies, music, books, gifts etc. Eating out and any prepared food you purchase is part of your entertainment budget.
- Spending more than 5% of your net income on car expenses. Car expenses include a lease, loan, insurance, gas, tolls, registration fees, repairs, and maintenance.
- Spending more than 5% of your net pay on vacations.
- Spending any money on gambling. If you’re going to gamble it should come out of your entertainment budget.
- Going over the top on gift giving. Gifts are part of your entertainment/gift budget. Sticking to your 10% budget will prevent you from going overboard on gift giving.
- Spending more than 5% on clothing. Spontaneous spending is never a good idea. You need to take the emotion out of your spending habits. There is always time to plan and shop before your spend your hard earned money.